Q2 2022 Bel Fuse Inc Earnings Call

July 28, 2022

Good morning, ladies and gentlemen.

Come to the Bel fuse.

Second quarter 'twenty 'twenty draw earnings conference call.

At this time.

All participants are in a listen only mode.

A question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded.

I'd now like to turn the call over to Jean Marie Young with three part advisors. Please go ahead Jean.

Thank you Bill and good morning, everyone before we begin I'd like to remind everyone that this conference call contains certain forward looking statements regarding the company's expected operating and financial plan first of all I'm Mitch for future periods. These statements are based on the company's current expectations actual results may differ materially from those expressed.

Or implied by these forward looking statements due to a number of risks and other factors additional information about factors that could potentially impact our financial results is included in yesterday's press release, and just discussed in our filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K and our subsequent.

Quarterly reports and other filings with the SEC from time to time.

We may also discuss non-GAAP results during this call and reconciliations of our GAAP results non-GAAP results have been included in our press release, our press release and our SEC filings are all available at the IR section of our website.

Joining me on the call today is Dan Bernstein, President and CEO .

Two weeks CFO and Lynn Hopkins director of financial reporting with that I'd like to turn the call over to Jack.

Thank you Jean and thank everyone for joining our call today.

I'm delighted to report we achieved record breaking results for the second quarter in many categories revenue adjusted EBITDA bookings and backlog.

The highest highest level golf history and.

Look back to 2015 to see comparative adjusted EBITDA results. This new milestone per barrel was delivered by our entire team and all three of our products.

Commercial aerospace continued to rebound with $7 8 million in sales up 43% for the same period last year and up 26% sequentially. The <unk> end market sales were up $6 7 million or 89% from the same period last year and up 13% essentially.

Power Magnetics continue to perform well.

And with margin improvement due to the strategic initiatives, we implemented over the past year revenue generated from our distributor partners grew $10 8 million or 23% over the same period last year.

Kevin activity margins are currently compressed due to the initial costs associated with ramping commercial air. Additionally, we had $9 million of revenue related to raw material expedite fees this quarter, where the overwhelming majority came from through power our power segment.

Although this is largely a pass through of minimum of administrative markup. This does have a negative impact on our margin. While this is an unusual source of revenue. We do expect this to continue in the near term and due to supply issues or stabilize.

The supply chain continues to be constrained impacting raw material availability freight and logistics.

That seems to be the new normal that every business is having to deal with.

I'm very proud of our team and the contributions that drove this record breaking performance and I'm confident we will continue our momentum throughout the remainder of the year I would like now to turn the call over to Lynn to provide.

For financial update.

Thank you Dan as Dan mentioned Q2 was very strong with year over year growth seen across each of our product groups overall.

Overall second quarter sales were $170 million, an increase of 23% from the second quarter of 2021.

Gross margin for the quarter increased to 26, 6% as compared to 24, 7% of your prior primarily due to our efforts on pricing over the past here.

Audit group power.

Power solutions and protection sales were 71 million up 28% from last year's second quarter and.

In addition to Dan's commentary on EV sales and expedite the invoicing. The power group also benefited from strong sales in our CMI business, which posted an increase of $1 8 million or 13% from Q2 2021.

Our Es business acquired in Q1 last year also saw growth of $1 1 million or 30% from last year's second quarter.

Gross margin for this group was 28, 2% for the second quarter of 230 basis point improvement from Q2, 2021, largely driven by the benefits of pricing actions taken over the last year.

Our power solutions and protection group had a book to Bill ratio of one nine during the second quarter of 2022.

And our backlog of orders of $338 million, an increase of 41% from the 2021 year end.

Turning to our connectivity solutions group sales were $46 1 million, an increase of 7% from last year's second quarter, mostly due to the continued rebound in the commercial aerospace end market and higher sales of our passive connector and cabling products.

Military sales continued to be challenged this past quarter, resulting in a 7% year over year decrease.

The defense end market.

Gross margin for this group came in at 27, 6% for the second quarter of 2022 down from 30% in the second quarter of 2021.

Much of the margin pressure related to incremental training and overhead cost at the factories as we have been quickly scaling the operations back up to accommodate the higher demand in commercial aerospace.

The connectivity solutions group had a book to Bill ratio of one two during the second quarter of 2022.

The backlog of orders of $103 million at.

At June 30, an increase of 21% from December 31.

Lastly, our magnetic solutions group had Q2 sales of $53 5 million up 33% from last year's second quarter led by increasing demand for our integrated connector modules that are used in next generation switching applications.

Gross margin for this group improved significantly to 28, 2% in the second quarter of 2022 from 23, 2% a year prior.

<unk> for this group benefited from the higher sales volume and also a favorable shift in exchange rate of Chinese renminbi versus the us dollar, which lowered our labor costs in China versus the 2021 period.

Our magnetic solutions group had a book to bill ratio of <unk> seven during the second quarter of 2022 and finished the quarter with $140 million of orders down slightly from the 2021 year end level.

Our selling general and administrative expenses were $24 million or 14% of sales up from $21 8 million in the second quarter last year, but down as a percentage of total sales.

Within SG&A the primary increases were related to salaries commissions travel and advertising costs.

Turning to balance sheet and cash flow items, we ended the quarter with a cash balance of $65 8 million an increase of $4 1 million from December 31.

Our working capital increased by $15 3 million from the 2021 year end.

We saw a $12 $7 million increase in our accounts receivable balance.

All set by a $5 million reduction in our Unbilled receivables balance at June 30, compared to the December 31 balances.

Our DSO were 53 days at June 32022, compared to 54 days at December 31 2021.

Inventories increased by $25 3 million from year end, which is largely seen in work in progress as we continue to accommodate the increase in demand from our customers.

In addition to changes in working capital other items impacting cash flow for the first half of 2022 included capital expenditures of $3 5 million and our continued dividend program, where we made payments of $1 6 million.

Cash paid during the first half of 2022 for income taxes was $4 6 million in interest payments totaled $1 1 million.

I'll now turn the call over to Rick for additional color outlook and expectations.

Thank you Lynn as we've spoken about the last few quarters. The initial plan was to build sequentially upon our progress in future quarters and that is precisely what we are doing we're proud to report our sixth consecutive quarter of year over year sales growth and margin improvement 2015, as Dan mentioned was the last time, we experienced.

Similar margins and we are delivering these results in a very challenging environment exclude.

Excluding the PPV part of our revenue our margins would have looked even more impressive as a percentage of sales.

Although we have started to see the fruits of our efforts we're still on a journey and remain laser focused on continuous improvement.

Looking toward the third quarter, we expect year over year topline growth in the high single digits and gross margins higher year over year and more in line with the second quarter of 2022.

Power Magnetics, we will see better year over year improvements, while collectively will be slow to follow until year end as contracts come up for negotiations. Our backlog continues to look robust with continuously improving gross margins that gets us excited as to our future prospects.

Thinking beyond the third quarter to the balance of 2022, we see continued demand demonstrated by our strong backlog of orders.

The economic concerns of 2023 have dominated the airwaves, we have not seen any meaningful signs of a slowdown some softening could occur over time, but we remain highly confident overall in the business.

From an operational efficiency perspective, there are still several internal initiatives underway and additional details will be shared in the near future to update you on our progress.

Our executive team had upside in May which resulted in some very exciting takeaways that give us the confidence in our ability to drive further long term shareholder value as we execute on our strategic plan and vision, we have identified diverse and numerous opportunities for continued margin improvement and are excited about the journey.

The diversity of contribution gives us optionality to see where our improvement will be coming from.

While these results are impressive our work is not done and it is on multiple fronts. We will celebrate this quarter with our teammates and quickly pivot back to the bigger task at hand.

And with that I'll turn the call back over to Dan.

At this time, we would like to open up the call for any questions you might have.

Thank you.

At this time, we will be conducting a question and answer session if.

If you would like to ask a question. Please press star one on your telephone keypad.

A confirmation tone will indicate your line is in the question queue.

Press Star two if you would like to remove your question from the queue.

All participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment, please while we poll for questions.

We have a first question from the line of Theodore O'neill with Litchfield Hills Research. Please go ahead.

Thank you and congratulations on a good quarter.

Dan in your prepared remarks, you talked about if I got this right $9 million in expedite fees that you were able to bill your customers is that they hear that correctly.

Yes.

What was that across all segments or one in particular, mainly.

Mainly focus I would say majority of it is in power products and bringing in semiconductors.

Okay.

Great.

You are having some good success here in terms of growth rate in the E mobility sector, which you cited here has continued to see good growth in the quarter.

How diverse is the customer base there and is this it is.

Share gain related or is it some.

Particularly good product fit.

I think it's more it's good product fit it's new technology most of all our designs where a single source at this point in time, So it's very engineering driven.

Many of the disclosures that we have for them I think we have over 250 kind of non disclosures, which ranges from anywhere kind of startups all the way to kind of big main staple names in the industry and us.

Dan noted this is still an emerging field, we had our first movers advantage. We've been in this business for roughly 10 years West early started on and now we're starting to see the fruits of that labor and it investments and our focus is tends to be our niche markets not the high volume automobile market. So for example trucks.

Post transportation for the post office.

Mining trucks thing, but in that nature.

Okay and are you seeing any changes in the dynamics between in terms of products flowing between distribution channel and your direct channel.

Distribution has been and is substantially stronger than the OEM market at this point in time and that falls back and forth, but we do see the market and distribution there are a lot more aggressive buying material.

Okay. Thanks very much.

Thank you.

We have next question from the line of Jim <unk>.

Ricchiuti with Needham <unk> Company. Please go ahead.

Hi, good morning, its actually Chris <unk> on for Jim.

Grant's on the great quarter.

Last quarter, you had referenced roughly $30 million to $40 million of sales pushed out.

Due to customer rescheduling has that trend improved stayed the same or expand it.

So that trend has continued the number currently is about $34 million.

Of orders that was scheduled to ship in the second quarter that did not so it's a very similar number to where it was last quarter.

Yeah.

Got it and maybe just to add some color on that that's not all on us partially maybe more.

Material challenges as Ben has spoken about but also on our customer side, where we may have finished goods and products on a ready ship, but theyre not ready as they are waiting on other parts of the system so to speak.

So it's a little bit of a mix of both of that.

Sure.

Got it thanks.

Anywhere anywhere where youre starting to see.

Any demand deterioration or any areas.

Alright group, our market vertical vertical that might be precursors to softening in consumer demand.

We are tremendously concerned about the recession concerns that we hear.

Throughout the country, but at this time, we monitor our cancellations daily and we haven't seen anything to give us any concern.

Thanks, a lot and maybe one more for me but.

You had alluded a little bit too, but where do you where do you stand with the strategy refresh and could you provide a sense for maybe where margins could go from here.

Once that once those initiatives are fully implemented.

Yeah, no. So I would say we are we understand that there is a lot of work ahead of us and there was a lot of internal projects going on across all three segments and these kind of range from sizes and scale from kind of big things to smaller things. So.

So it is coming from from all ends in terms of our strategy. We think that we have a healthy room to go yet on the margin front.

And we don't obviously put on any forward guidance, but we understand that we're still kind of climbing the stairs here early on so look I'll leave it at that here.

Fair enough, thanks, very much and congrats on the quarter.

Thank you.

Thank you we have next question from the lineup Handy Santo with Gabelli funds. Please go ahead.

Good morning, Dan Farrell and Helene.

Okay.

Congrats on strong results I would like to ask questions about the pricing action so how much.

Much of the benefit of pricing action.

<unk> generated in the June quarter, and Im wondering whether you can give more color.

Like how much more and then I assume more.

Manuel come and but I don't know what kind of timing and then maybe you can help us figuring out what magnitude.

Yes, I appreciate that question Hendi.

On the pricing side.

When we initially started this it was really a little bit of a.

A combination of reactionary to the increased input cost logistics freight everything kind of that goes into producing these products as we looked at some of these products last year. Some of our components have gone up we got price increases the tune of 10 times. The other part of it is we need to in addition to recovery look at what is a healthy an acceptable margin for us and.

That answer is going to look a little bit different based on product the competitive set the customer and where we are so it's not as it is.

Straight lined across the bow here, it's really nuanced and surgical approach to it.

But we are not done in the sense that we're still seeing challenges in the supply chain. So as cost increases go up or changes we need to stay on top of that so it's a continuous game. So the difficulty of answering your question. Here is is twofold. One is its ongoing so if we're looking at Q2 for example.

It happened a number of times.

So we are not putting a number out there yet, but I would say while pricing.

It has obviously got a big amount of air play here I want to also emphasize that we are taking market share. We are winning new business and we are getting into new designs.

<unk>.

As we were going after these newer opportunities, where we're pricing things a little bit more appropriate for a company that meets our kind of shareholder expectations and what we expect of ourselves. So I'll leave it at that but what encourages me as we look out and part of my bullish view here is the diversity of it. So we're not seeing kind of just again one.

Customer one end market that this is a growing but we have a ways to go so I'll leave it at that.

I see.

And then.

I asked about the commercial.

Aerospace revenue it is great to see the rebound.

And then if I remember correctly the run rate.

Free coffee is somewhat close to $40 million.

The rebound to.

Go further closer to the $40 million run rate anytime soon.

So I'll answer the first part of that question Hendi. So our commercial aerospace sales for the second quarter were $7 8 million.

And to put that in perspective, that's up from $5 5 million in Q2 last year.

So.

As we had mentioned previously commercial aerospace if you take the.

Defense business, plus the recently acquired RMS business, it was around $40 million to $45 million.

Pre COVID-19.

So I think so.

So, yes, I would say so.

If we kind of go back to pre Covid.

<unk> kind of cutting back on spending in the industry and kind of grounding and all that kind of stuff that was in the news we were roughly run rating in the mid <unk>.

Obviously that end markets coming back Roaring and we're seeing all the headlines we think there'll be a multi year opportunity. So 45 is kind of the previous normal the new normal should be should be well north of that.

I think that's how I'd answer so we're early on in the game of recovery, but we've got a long way to go to get back to at a minimum the old normal, but definitely the new normal.

I see.

And then.

Can you give some puts and takes on gross margin and opex.

I'm wondering like how sustainable gross margin at 25% to 26% and.

Opex I saw that R&D dropped to four 7 million.

I'm wondering whether we would see like a rebound in R&D.

Yes, so the R&D kind of similar to the commentary that Lynn made earlier on our wages. The Magnetics group there was a little bit of FX favor in there.

And I would say across all of our businesses FX and multiple lines was close to $1 million for the quarter.

So I think in the near term with the economic World view, we think that dollar will probably continue to strengthen or maybe stay kind of where it is in relation to some of these other currencies. So I would say.

We it is a benefit for us probably around maybe the near term, but it's not necessarily something were planning on it as we look at our operations to make sure we're running a very lean operation over here. So.

That's kind of the benefit that came from there in terms of sustainability I think we've been we've been very public in terms of saying that.

We're continuing with the client and that's going to come both on the pricing and revenue picking the customers in our Skus and all that good stuff, but also goes directly to where we develop and what kind of products and niches, we're trying to get into a little bit more that give us give us a little bit more of a defensible moats, but the third leg of that stool is also going to be.

As we think about just how we do business and that's going to.

Hopefully some of these things we will be sharing as time goes on so I wanted to.

Just to highlight that this is a multi pronged approach to both sustainability and increase and gives us comfort that we will get there because of the diversity of the optionality in front of us here.

Thank you so much.

Thank you.

Thank you ladies.

Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to Dan Bernstein for closing remarks over to you Sir.

Thank you for joining us today, we appreciate your time and we're looking forward to presenting on <unk> results.

Thank you ladies and gentlemen. This concludes today's conference call. You may disconnect. Your lines at this time and thank you for your participation.

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Good morning, ladies and gentlemen, welcome to the Bel fuse SEC.

Second quarter 2020 earnings conference call.

At this time.

Participants are in a listen only mode.

A question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded.

Now I'd like to turn the call over to Jean Marie Young with three part advisors. Please go ahead Jean.

Thank you Victor and good morning, everyone before we begin I'd like to remind everyone that this conference call contains certain forward looking statements regarding the company's expected operating and financial plan personal limits for future periods. These statements are based on the company's current expectations actual results may differ materially from those expressed.

Or implied by these forward looking statements due to a number of risks and other factors additional information about factors that could potentially impact our financial results is included in yesterday's press release and as discussed in our filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K and our subsequent.

Quarterly reports and other filings with the SEC from time to time.

Joining me on the call today is Dan Bernstein, President and CEO .

Two weeks CFO and Lynn Hopkins director of financial reporting.

With that I'd like to turn the call over to Dan Dan.

Jean and thanks to everyone for joining our call today.

I'm delighted to report we achieved record breaking results for the second quarter in many categories revenue adjusted EBITDA bookings and backlog all at the highest highest level in <unk> history.

And when you look back to 2015 to see comparative adjusted EBITDA results. This new milestone for barrel was delivered by our entire team and all three of our products.

Power Magnetics continue to perform well.

Margin improvement due to the strategic initiatives, we implemented over the past year revenue generated from our distributor partners grew $10 8 million or 23% over the same period last year connectivity margins are currently compressed due to the initial costs associated with ramping commercial air. Additionally, we had 9 million.

Revenue related to raw material expedite fees this quarter, where the overwhelming majority came from through power our power segment.

Although this is largely a pass through of a minimum of administrative markup. This does have a negative impact on our margin.

This is an unusual source of revenue we do expect this to continue in the near term and due to supply issues or stabilize.

The supply chain continues to be constrained impacting raw material availability freight and logistics, but that seems to be the new normal that every business is having to deal with.

Yes.

I'm very proud of our team and our contributions that drove this record breaking performance and I'm confident that we will continue our momentum throughout the remainder of the year.

Like now to turn the call over to Lynn to provide full financial update Brian .

Thank you Dan as Dan mentioned Q2 was very strong with year over year growth seen across each of our product groups overall.

Overall second quarter sales were $170 million, an increase of 23% from the second quarter of 2021.

Gross margin for the quarter increased to 26, 6% as compared to 24, 7% a year prior primarily due to our efforts on pricing over the past year.

By product group.

Power solutions and protection sales were $71 million up 28% from last year's second quarter and.

Our Es business acquired in Q1 last year also saw growth of $1 1 million or 30% from last year's second quarter.

Gross margin for this group was 28, 2% for the second quarter at 230 basis point improvement from Q2, 2021, largely driven by the benefits of pricing actions taken over the last year.

Our power solutions and protection group had a book to Bill ratio of one nine during the second quarter of 2022.

And our backlog of orders of $338 million, an increase of 41% from the 2021 year end.

Military sales continued to be challenged this past quarter, resulting in a 7% year over year decrease.

The defense end market.

Gross margin for this group came in at 27, 6% for the second quarter of 2022 down from 30% in the second quarter of 2021.

The connectivity solutions group had a book to Bill ratio of one two during the second quarter of 2022.

Our backlog of orders of 103 million at June 30, an increase of 21% from December 31st.

Gross margin for this group improved significantly to 28, 2% in the second quarter of 2022 from 23, 2% a year prior.

Margins for this group benefited from the higher sales volume and also a favorable shift in exchange rate of Chinese renminbi versus the us dollar, which lowered our labor costs in China versus the 2021 period.

Our magnetic solutions group had a book to bill ratio of <unk> seven during the second quarter of 2022 and finished the quarter with $148 million of orders down slightly from the 2021 year end level.

Our selling general and administrative expenses were $24 million or 14% of sales up from $21 8 million in the second quarter last year.

As a percentage of total sales.

Within SG&A the primary increases are related to salary plus commissions.

Commissions travel and advertising costs.

Turning to balance sheet and cash flow items, we ended the quarter with a cash balance of $65 8 million an increase of $4 1 million from December 31.

Our working capital increased by $15 3 million from the 2021 year end.

We saw a $12 $7 million increase in our accounts receivable balance.

Offset by a $5 million reduction in our Unbilled receivables balance at June 30, compared to the December 31 balances.

Our DSO were 53 days at June 32022, compared to 54 days at December 31 2021.

Inventories increased by $25 3 million from year end, which is largely seen and work in progress as we continue to accommodate the increase in demand from our customers.

Cash paid during the first half of 2022 for income taxes was $4 6 million in interest payments totaled $1 1 million.

I'll now turn the call over to Rick for additional color outlook and expectation.

15.

I mentioned was the last time, we experienced similar margins and we are delivering these results in a very challenging environment.

Excluding the PPV part of our revenue our margins would have looked even more impressive as a percentage of sales.

Though we have started to see the fruits of our efforts we're still on a journey and remain laser focused on continuous improvements.

Looking toward the third quarter, we expect year over year top line growth in the high single digits and gross margins higher year over year and more in line with the second quarter of 2022.

Power Magnetics, we'll see better year over year improvements, while collectively will be slow to follow until year end as contracts come up for negotiations. Our backlog continues to look robust with continuously improving gross margins that gets us excited as to our future prospects thinking beyond the third quarter to the balance of <unk>.

'twenty two we see continued demand demonstrated by our strong backlog of orders wildly economic concerns 2023 have dominated the airwaves, we have not seen any meaningful signs of a slowdown some softening could occur over time, but we remain highly confident overall in the business.

From an operational efficiency perspective, there are still several internal initiatives underway and additional details will be shared in the near future to update you on our progress.

Our executive team had upside and made which resulted in some very exciting takeaways that give us the confidence in our ability to drive further long term shareholder value as we execute on our strategic plan and vision, we have identified diverse and numerous opportunities for continued margin improvement and are excited about the journey.

The diversity of contribution gives us optionality to see where our improvement will be coming from.

While these results are impressive our work is not done and it is on multiple fronts. We will celebrate this quarter with our teammates and quickly pivot back to the bigger task at hand.

And with that I'll turn the call back over to Dan.

At this time, we would like to open up the call for any questions you might have.

Thank you.

At this time, we will be conducting a question and answer session.

If you'd like to ask a question. Please press star one on your telephone keypad.

A confirmation tone will indicate your line is in the question queue.

Press Star two if you would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment, please while we poll for questions.

We have our first question from the line of Theodore O'neill with Litchfield Hills Research. Please go ahead.

Thank you and congratulations on a good quarter.

Dan in your prepared remarks, you talked about if I got this right $9 million in expedite fees that you were able to build your customers is that they hear that correctly.

Yes.

What was that across all segments or one in particular, mainly.

Mainly focused.

Majority of it is in power products and bringing in semiconductors.

Okay.

Great.

You are having some good success here in terms of growth rate in the E mobility sector, which you cited here has continued to see good growth in the quarter.

How diverse is the customer base there and is this is for.

Share gain related or is there some.

Particularly good product fit I think it's more it's good product fit it's new technology. Most of all our designs. We are single source at this point in time, So it's very engineering to river.

The disclosures that we have for I think we have over 250 kind of non disclosures, which ranges from anywhere kind of startups all the way to kind of big main staple names in the industry and as Dan noted. This is still an emerging field. We had our first movers advantage. We've been in this business were roughly 10 years West early started on and now we're starting to.

See the fruits of that labor and it investments.

Our focus is tends to be our niche markets not the high volume automobile market. So for example trucks.

Post transportation for the post office.

Mining trucks thing, but in that nature.

Okay and are you seeing any changes in the dynamics between in terms of products flowing between distribution channel and your direct channel.

Distribution has been and is substantially stronger than the OEM market at this point in time and that flows back and forth, but we do see the marketing distribution. They are a lot more aggressive buying material.

Okay. Thanks very much.

Yeah.

Thank you.

We have a next question from the line of Jim <unk>.

Ricchiuti with Needham <unk> Company. Please go ahead.

Hi, good morning, its actually Chris <unk> on for Jim.

Grant's on the great quarter.

Last quarter, you had referenced roughly $30 million to $40 million of sales pushed out.

Due to customer rescheduling has that trend improved stayed the same or expand it.

So that trend has continued the number currently is about $34 million.

Of orders that was scheduled to ship in the second quarter that did not so it's a very similar number to where it was last quarter.

Yeah.

And maybe just to add some color on that that's not all on us partially maybe or.

Material challenges as Ben has spoken about but also on our customer side, where we may have finished goods and products already shipped but theyre not ready as they are winning in other parts of the system so to speak.

So it's a little bit of a mix of both of that.

Got it thanks.

Anywhere anywhere youre starting to see.

Any demand deterioration or any areas.

Alright group, our market vertical vertical that might be precursors to softening in consumer demand.

Our registry concern about the recession concerns that we hear.

The country, but at this time, we monitor our cancellations daily and we haven't seen anything to give us any concern.

Excellent and then maybe one more from me but.

Okay.

You had alluded a little bit too, but where do you where do you stand with the strategy refresh and could you provide a sense for maybe where margins could go from here.

Once that once those initiatives are fully implemented.

Yeah, no. So I would say we are we understand that there is a lot of work ahead of us and there was a lot of internal projects going on across all three segments and these can range from sizes and scale from kind of big things to smaller things.

So it is coming from from all ends in terms of our strategy. We think that we have a healthy room to go yet on the margin front.

And we don't obviously put any forward guidance, but we understand that we're still kind of climbing the stairs here early on.

We've got that here.

Fair enough, thanks, very much and congrats on the quarter.

Thank you.

Thank you we have next question from the lineup Handy Santo with Gabelli funds. Please go ahead.

Good morning, Dan Farrell and lean.

Alrighty.

Congrats on strong results.

I'd like to ask questions about the pricing action, so how much of the benefit of pricing action.

<unk> generated in the June quarter, and I'm wondering whether you can give more color like.

Like how much more and then I assume more.

More will come and but I don't know what kind of timing and then maybe you can help us figuring out what magnitude.

Yes, I appreciate the question here handy.

On the pricing side.

When we initially started this it was really a little bit of a combination of reactionary to the increased input costs logistics freight everything kind of that goes into producing these products as we looked at some of these products last year. Some of our components have gone up we've got price increases to the tune of 10 times. The other part of it is we need to in addition to recover.

Look at what is a healthy an acceptable margin for us and that answer is going to look a little bit different based on product the competitive set the customer and where we are so it's not as it's not a straight line across the bow here, it's really nuanced and surgical approach to it but we.

<unk> not done in the sense that we're still seeing challenges in the supply chain. So as cost increases go up where changes we need to stay on top of that so it's a continuous game. So the difficulty of answering your question. Here is is twofold. One is its ongoing so if we look at Q2 for example, having a number of times.

Yes.

So we are not putting a number out there yet, but I would say while pricing.

It has obviously got a big amount of air play here I want to also emphasize that we are taking market share. We are winning new business and we are getting into new designs.

Just again, one customer one end market that this is a growing but we have a ways to go so I'll leave it at that.

I see.

And then May I ask about the commercial.

Commercial aerospace revenue it is great to see the rebound.

And then if I remember correctly the run rate.

Pre coffee is somewhat close to $40 million.

Expect it to rebound to.

Go further closer to the $40 million run rate anytime soon.

So I'll answer the first part of that question, Andy So our commercial aerospace sales for the second quarter were seven 8 million.

And to put that in perspective, that's up from $5 5 million in Q2 last year.

So as.

As we had mentioned previously commercial aerospace if you take.

The cinch business plus the recently acquired RMS business, it was around $40 million to $45 million.

Pre COVID-19.

So I think from a governance and so yes, I would say so so if we kind of go back to pre COVID-19.

Pre kind of cutting back on spending in the industry and can a grounding and all that kind of stuff that was in the news we were roughly run rating in the mid Forty's.

So I think that's how to answer so we're early on in the game of recovery, but we've got a long way to go to get back to at a minimum the old normal, but definitely the new normal.

I see.

And then okay.

You gave some put and takes on gross margin and Opex.

I'm wondering like how sustainable gross margin at 25% to 26%.

Dan.

Opex I saw that R&D dropped to $4 7 million.

I'm wondering whether we would see like a rebound in R&D.

Yes, so the R&D kind of similar to the commentary that.

<unk> made earlier on our wages the Magnetics group, there was a little bit of FX favor in there.

And I would say across all of our businesses FX and multiple lines was close to $1 million for the quarter.

So I think in the near term what the economic World view, we think the dollar will probably continue to strengthen or maybe stay kind of where it is in relation to some of these other currencies. So I would say.

That's kind of the benefit that came from there in terms of sustainability I think we've been we've been very public in terms of saying that.

We're continuing to the client and that's going to come both on the pricing and revenue.

Customers in our Skus and all that kind of good stuff, but also goes directly to where we develop and what kind of products and niches, we're trying to get into a little bit more.

It gives us a little bit more of a defensible moats, but the third leg of that stool is also going to be as.

As we think about just how we do business and Thats going to.

Hopefully some of these things what we'll be sharing as time goes on so I wanted to.

Thank you so much.

Thank you.

Ladies and gentlemen, we have reached the end of the question and answer session and I'd like to turn the call back to Dan Bernstein for closing remarks over to you Sir.

Thank you for joining us today, we appreciate your time and we're looking forward to presenting our next results.

Thank you ladies and gentlemen. This concludes today's conference call. You may disconnect. Your lines at this time. Thank you for your participation.

Q2 2022 Bel Fuse Inc Earnings Call

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